John Hutton – 2006 Speech to Welfare to Work Convention

Below is the text of the speech made by John Hutton, the then Secretary of State for Work and Pensions, to the Welfare to Work Conference in Birmingham on 19th June 2006.

In our modern economy, faced with all the challenges of technological, social economic and demographic change, I believe our welfare system can and will play a central role in helping Britain grow and prosper as a country.

It must always ensure there is a floor below which no person can fall. But it must do much more than this. It must support and help people make the most of their talents and skills. It should provide a bridge to walk on – not a platform to stay on. It must help our economy and our people adapt to change.

By investing in the New Deal and Jobcentre Plus we have begun to replace the one-size-fits-all, re-active system of benefit dependency of years gone by, with a new approach based on tailored support to help people back into work and new obligations for people to do everything possible to help themselves.

And throughout this process of reform, we have locked in a set of decent, progressive values – of universality and opportunity; of security and equity – underpinned by an equality of opportunity that stretches back to Beveridge in seeing the right to work as fundamental to tackling poverty and building aspiration for everyone in our society.

So our principle objective in welfare reform today must be to design and deliver the most effective and efficient re-employment services anywhere in the world. With providers being properly incentivised to deliver the best possible services to the customer, and where job seekers are actively engaged in finding work or improving their employability. We are seeing progress in all of these areas.

Today there are more people in work than ever before – with over 2.5 million more than in 1997. The biggest increases have been in the neighbourhoods and cities that started in the poorest position. And, as last week’s OECD report showed, not only do we have the highest employment rate of the G7 countries – now, for the first time in 50 years, we also have the lowest combination of unemployment and inactivity rates.

But we have much further to go. The challenge we face today is how to build a modern welfare state that allows people to exercise their fundamental right to work – at a time when our national economy is changing more rapidly than at any time since the industrial revolution.

Managing such change is one of the biggest challenges facing social and welfare policy – not just in this country, but in developed countries all around the world. But while the pace of change can seem daunting, the forces that lie behind these changes represent progress not decline. They hold out more opportunities than threats. If we can take full advantage of them, they extend the chance to end social injustice, poverty and exclusion in our society.

Our welfare state must adapt to meet this challenge and to seize the opportunities it presents. That’s why we’ve set ourselves the aspiration of an 80% employment rate. I do not underestimate the scale of such an ambition. It will mean a million fewer claiming incapacity benefit, a million more older people in work and an extra 300,000 lone parents off benefit.

But its achievement will be critical for the nation; for our economic and social well-being. For individuals; for families and communities; for wealth creation and economic competitiveness; and crucially – for equality and social justice.

Our Welfare Reform proposals are designed to help us meet this challenge. They are underpinned by clear principles – the development of a modern welfare state that responds to individual need, balances rights with responsibilities and invests for the long-term. That provides work for those who can and security for those who can’t.

A new benefit system founded on the concept of measuring and building up each individual’s capacity rather than writing people off as incapable. And a radical extension of the support available for every Incapacity Benefit claimant – underpinned by the extension of Pathways to Work to every part of Britain by 2008 – bringing new hope and opportunity to some of the most disadvantaged members of our communities.

This is a vision for the future direction of welfare reform that has been widely welcomed during our consultation on the Green Paper published in January. Many of you here today will have been among the 600 organisations and individuals who responded to the consultation – and among the 5000 people who attended almost a hundred events during the formal Consultation Period.

I am very grateful for your input and for all the comments and suggestions that we have received.

Today we are publishing on our website our response to the Consultation – together with our response to the Work and Pensions Select Committee report on Incapacity Benefits and Pathways to Work.

We’ve listened carefully to concerns that the adoption of Jobseeker’s Allowance rates in the Employment and Support Allowance would penalise disabled young people.

We believe that the alignment of the basic rate of the Employment and Support Allowance with JSA is a crucial part of the simplification of the system – and that the abolition of age-related payments is an important part of the shift to a functional, capability-based system that doesn’t simply write-off people’s future potential on the basis of their age or general assumptions about the incapacity associated with a specific condition.

But I am absolutely clear that it would be absolutely wrong to discriminate against young disabled people. It was never our intention to do so. That is why we have decided that young people will now get the same basic allowance in the main phase of the Employment Support as everyone else. Additionally, we have decided that young people will also have special provisions to get access to contributory Employment and Support Allowance without the necessary contribution record, as is the case now with incapacity benefits.

There were also strong concerns from employers over our proposals to simplify Statutory Sick Pay – and in particular to abandon the three waiting days. Our intention was to simplify the process of administering the scheme while maintaining that crucial balance between helping to keep costs down and retaining protection for the most vulnerable employees. Employers felt that the simplicity they would gain from these changes was not sufficient to outweigh the loss of flexibility that waiting days gave them – so we have decided not to proceed with these proposals at this point and instead to continue working with employers’ and employees’ representatives to consider alternative approaches to simplification.

Most importantly – today’s response to the consultation is not the final word. Key elements of the policy consultation are still ongoing. In particular, it’s critical that we get the gateway to the benefit right – and we are continuing to review the design of the new Personal Capability Assessment.

We are particularly conscious of how important mental health is within this. There are around 1 million people on Incapacity Benefit because of a mental or behavioural disorder – that’s more than the total number of unemployed people on benefit.

Studies show that many people with mental health problems want to work. Yet people with mental health conditions have the lowest employment rate of any disabled group.

That’s why we have created review groups, involving both technical and stakeholder experts, to look at the mental health as well as physical components of the assessment.

For example, the current PCA mental health assessment does not clearly distinguish between people with a mental illness and those with a learning disability. The review will ensure that the revised PCA provides a more accurate assessment of the cognitive and intellectual difficulties faced by people with a learning disability, through better evidence gathering from more appropriate sources, and better focus on the functional limitations that result.

So we are continuing to listen. And I hope you will continue to work with us as we take forward the detail of our policy proposals.

But I also hope that you will work with us on another crucial area – namely the modernisation of our welfare delivery.

The national roll-out of Pathways and creation of the Cities Strategy offer a huge opportunity for opening up new ways of delivering employment services to some of the most disadvantaged people and communities.

Our economy will benefit enormously from these changes. To lay the foundations for a system of welfare delivery that embraces diversity of provision as the norm and not the exception. That recognises that the world is not neatly divided into two halves – a public sector built on values and ethics and a private sector, somehow devoid of these attributes, but efficient and responsive. That this is an outdated, lazy caricature. Instead, we need a dynamic and effective market where good providers are properly rewarded, whether they come from the public, private or the voluntary not for profit sectors.

Our capacity to manage this new environment – where the boundaries between public and private will necessarily change – will determine our ability to deliver our wider public policy objectives.

So our success in tackling poverty and worklessness – and our ability to preserve the values of social justice which we hold dear – hinge not on preserving the existing system of welfare delivery – but on modernising it; not on standing back and celebrating what we have already achieved with Jobcentre Plus and the New Deal – but on driving forward and building on that success; harnessing the powerful engine for change that markets can provide without sacrificing the principle of equity which markets, if not properly regulated, can so easily undermine.

This new and emerging system of devolved active welfare needs to be managed by Government within a clear framework where outcomes as well as values are prioritised. I believe there are five key tests we need to meet to make this new welfare system work in the way it should.

Firstly – we need to get the right incentives. To attract the best providers and incentivise them to deliver substantially better outcomes – outcomes that match our social objectives. To create an incentive structure that properly rewards providers for helping more difficult cases – and not just focusing on the easiest to help; that supports innovation and enables effective risk management; and that reflects our ambition not simply to help people move into work but to help them stay in work. In developing this new approach we can build on what we have already learned in the Employment Zones.

Secondly, flexibility. To empower local institutions to develop local solutions – combining and aligning their efforts behind shared priorities. Facilitating new contracting structures and delivery models that allow for greater flexibility in inputs in exchange for greater improvements in outcomes; breaking down the barriers of short-term stop-go contracts that too often stifle innovation or even act as barriers to entry for potential providers; and more synchronisation of tendering timetables to allow greater flexibility over the bidding process, for example, enabling providers to bid for larger contracts with clusters of districts.

I accept that in this area we have a lot of work to do. The City Strategy and the roll out of Pathways to Work give us the opportunity to make real progress here. In Glasgow and Manchester for example, real progress has already been made in getting local agencies working together to tackle worklessness with excellent results. We need to see more of this across the UK as a whole.

Thirdly, accountability. The success of this approach will hinge critically on the monitoring of performance outcomes and the clarity of sanctions and rewards. We need clearly defined, robust mechanisms for monitoring performance which recognise the power of the consumer and don’t try to micro-manage from the centre or obstruct local innovation. We have reached the high-watermark of centrally imposed targets. We need a different type of intervention from the centre – one that successfully balances the tension between achieving high quality bespoke services that are sensitive and responsive to the needs of millions of different individuals – and yet still operates within a nationally defined rules structure, regulating quality with clear sanctions and rewards.

Fourthly, information. Providers need clear information over what’s expected of them and when. They need confidence in the transparency of the procurement decision making process and a stronger sense of stability and co-ordination across Government and its agencies contracting with this market. Accuracy and availability of Information on quality of outcomes will be the critical currency for evaluation and will underpin the effectiveness of the rewards structure. And we need a clear assessment of the potential for new players to enter and the impact they could have on existing players. It’s not just Government that needs to know which providers are doing well. So do those who are seeking work.

Finally, personalised outcomes. The ultimate test of the effectiveness of these reforms is the extent to which it can embed a new degree of personalisation into welfare delivery – with ever greater tailoring to the specific needs of individuals – and an ever greater range of tools with which to help people.

So I believe that in meeting these tests, the next decade has the potential to be the most exciting time for providers of welfare services. But it will also be the most challenging.

I hope and expect that new providers will emerge. Existing providers will need to adapt to the new demands of a welfare delivery system that is characterised by a clearer focus on customer service; a new degree of efficiency that delivers real value for money for the taxpayer; more risk management and potentially bigger scale commitments and greater choice, not just within programmes but potentially even between providers.

It won’t be one-way traffic however. There will be similar challenges for Government – in developing skills and capabilities at the centre to procure, commission and manage networks of providers. In working with other Government departments, agencies, devolved and local governments to construct models of delivery that allow us both to create and transform the quality of a national welfare market whilst at the same time sharing power, responsibility and accountability with devolved structures; and sharpening our focus on public policy outcomes, with a real and explicit commitment to be in it for the long term – clarifying the role of politicians and Government about how and where we intervene and providing clear political leadership against which these objectives can be assessed.

If we can rise to this challenge and deliver a model that meets the five tests I have set out, then I believe we can take a major step towards a modern, active and devolved welfare state that tackles poverty at community level and enables individuals to overcome the multiple barriers they face in getting back to work and progressing through the labour market.

We know what a difference such locally-tailored solutions can make. Last week I visited the Harlem Children’s Zone in New York – an inspirational initiative that offers a comprehensive network of social service, education and community-building programmes to transform opportunities for children and families in some of New York’s most deprived neighbourhoods. Locally based and independently-run – it gives people the belief they have the power to improve their services from the ground up. And you can see the difference in the educational achievements of those young people going through its programmes.

This is the best way to build and maintain sustainable solutions to reducing poverty and social exclusion. That should be our priority now and into the future. A shared agenda, common objectives, dialogue and debate; and a willingness to listen and learn can help us realise it.

And there is one simple, stark fact that unites New York with every city in the UK and around the world. Intelligence is equally distributed between people wherever they are born – but the opportunity to succeed is not. That is what we must put right with these reforms to our welfare system in the UK.